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5 reasons 6 figures won't make you rich

There's something about the figure "$100,000" that just has a magical ring to it. Since the 1980s, a $100,000 income has been a benchmark of financial success. It used to buy a nice house in a posh neighborhood, two cars in the driveway, family vacations, college tuition for the kids and a fair level of luxuries.

Only about 20 percent of American households even break the six-figure mark, according to Census Bureau data, but while many Americans still see that number as a prized income, it doesn't necessarily roll out the red carpet anymore. Due to the rising costs of food, energy, college tuition, health insurance and the growing "necessities" of a middle-class life, a $100,000 salary in some parts of the country covers little more than the essentials.

A six-figure salary is still a great income, but the quality of life it provides is highly dependent on geography, family size and lifestyle. Making a six-figure salary as a single person in Houston is drastically different from raising a family of four on $100,000 in Boston.

Here are five reasons why that prized income no longer buys the high-end lifestyle it once did.

Inflation

The inflation rate was 3.2 percent in 2011 and 2.1 percent in 2012. That's significantly lower than sky-high inflation rates of the '70s and '80s, but gas, food prices, college tuition and the cost of health care have taken the biggest bites out of six-figure incomes. The latter two, plus the cost of housing, have risen faster than the rate of inflation over the past decade.

"Everyone spent money on these things 30 years ago, but they're spending a higher percentage of their income on it now, especially housing, health care and tuition," says Mari Adam of Adam Financial Associates in Boca Raton, Fla.

While the cost of everything has gone up, Americans still equate the "six-figure" milestone to wealth and prosperity. But according to the Bureau of Labor Statistics inflation calculator, for a person to have the same purchasing power in 2012 as a $100,000 income earner in 1980 did, he or she would need to earn nearly $279,000.

"If $100,000 income doesn't even buy half of what it once did, it makes you wonder about people living on the median income (of $50,502)," says Adam. "It underlines the fact that times are getting tougher for everyone."

Stagnant wage growth

While inflation is a real factor in any economic environment, it has been a bigger problem in recent years because wages have not kept up. According to the BLS, for the fiscal year that ended in December 2012, wages and salaries grew an average of 1.7 percent, while during that same period, consumer prices rose 1.7 percent. From 2000 to 2010, real incomes fell 7 percent. When the newest numbers are released, they're expected to reveal an even further plummet in real incomes.

"We haven't had real wage growth, and with inflation, Americans are not making much more than they were 20 years ago. Some may even be making less," says Adam.

According to 2011 data from the U.S. Census Bureau, only 21 percent of households had an income of $100,000 or more. Adam Koos of Libertas Wealth Management Group near Columbus, Ohio, says members of most households would see a boost in their quality of life by hitting the six-figure benchmark, but they might be surprised to see it doesn't necessarily make them high rollers.

When the term started being thrown around in the '80s, a $100,000-earner might have lived in an elaborate home with a BMW in the driveway. Nowadays, he or she is more likely to live in a 1,500-square-foot house and drive a 7-year-old Toyota.

"Back in the '80s when we were kids, we all looked up to a six-figure income and thought it was huge. People still look up to that and think they're going to be 'rich,' but it's just not the case," says Koos.

Geography

Where a person lives has a tremendous impact on how far a $100,000 income will go. Living on that salary in Texas or Mississippi is dramatically different from living on it in New York or Boston. Roy Laux, president of Synergy Financial Services in McKeesport, Pa., says it's an unavoidable factor that the cost of one's mortgage or rent can make or break that six-figure income.

"Geography is huge. If you're in an area where housing has been historically high, it's just going to take a large portion of that income," says Laux.

The Cost of Living Index compares the cost of housing, utilities, grocery items, transportation, health care and miscellaneous goods. According to Bankrate's cost of living comparison calculator, you'd need to earn about $151,000 in Boston to have the equivalent of $100,000 in Houston. And if you were living on $100,000 per year in Memphis, Tenn., you'd have to earn roughly a whopping $268,000 to maintain the same standard of living in parts of New York City. While salaries are often higher in cities with higher costs of living, they don't always match up to provide the same quality of life.

"When you live in these high-cost metro areas, it just gets increasingly difficult to do with any income. When more of your money is going to housing, you've got less left over for savings and other expenses," says Adam.

Family

Household size and the number of children in the home also have a large impact on the power of a $100,000 income. According to the U.S. Department of Agriculture, the cost to raise a child from birth to age 18 for a middle-income, two-parent family is $234,900. That's up nearly 40 percent from 10 years ago and doesn't even include college.

In recent years, college tuition costs, which have been growing faster than the rate of inflation for more than two decades, are rising even quicker. According to the College Board's annual Trends in College Pricing report from 2011, the average cost of tuition at a four-year public university has grown in current dollars from $3,508 in 2000 to $8,200 in 2011. That's more than 10 percent per year, which is almost three times the average inflation rate of 3.4 percent between 1914 and 2012.

"The reality is that college tuition exceeds mortgage payments for a lot of people. If you've got two kids and have college costs, you're probably not going to feel rich on a $100,000 income," says Joe Pitzl, director of financial planning at Intelligent Financial Services.

Families are also being hit hard by the cost of health insurance. The Kaiser Family Foundation, which tracks the costs of health insurance, found in 2011 that insurance costs had increased by a whopping 134 percent since 2000. The total cost of health insurance now averages $5,429 per year for individuals and $15,079 for families.

Lifestyle

No matter how much he or she makes, anyone who lives beyond his or her means is going to feel financially pinched. While conspicuous consumption and blatant overspending is a problem, even those who try to keep an eye on their budget spend a large portion of their income on what financial advisers call "lifestyle inflation." Koos says these are things that may not be necessities but are considered such at a certain income level. Many middle-class citizens now see cable, smartphones, tablet computers, multiple televisions, Blu-ray players and gym memberships as "essential."

"There's almost a sense of entitlement that we need all of these things. Maybe we do, maybe we don't, but we're just at a point in time where we consider them necessities," says Koos.

All of these subscriptions, bills and products can easily add up to more than $5,000 for a family of four. Adam says that technology and those expectations lead to higher consumption and spending for households in all income levels.

"It's a big problem we see as planners. People expect more out of life than they did 20 years ago, and the cost of those things is rising, so it's a double whammy," says Adam.